Dear Shareholder,

At the company’s Annual General Meeting held in Melbourne a few weeks ago, there was considerable discussion of the Government’s proposed Resource Super Profits Tax. Your board has serious concerns about the impact of this proposed new tax, not only for Rio Tinto and the mining industry, but indeed for the whole of Australia’s future economic prosperity. During the course of the meeting, it became apparent that your board’s concerns were widely shared by shareholders, as a result of which I have decided to write to you to express our misgivings in clear and simple terms.

When the Henry Tax Review was first announced by the Government two years ago, Rio Tinto indicated clearly that we wanted to be positively engaged in the process. We have been long time supporters of genuine tax reform that enhances the efficiency and competiveness of the Australian economy. The proposed super tax does not deliver either of these goals. In fact, the Government’s proposal will penalise efficiency, discourage competitiveness, curtail investment and limit jobs growth.

Rio Tinto, like the rest of the mining industry, has grave concerns about the fundamentals of the new tax. It has been developed in a vacuum and is divorced from the day-to-day realities of business. 

We are particularly concerned by the application of the tax to existing projects. The mining industry invests billions of dollars a year in new projects and most of these projects take years, even decades, to pay back that investment. Companies like Rio Tinto are naturally only prepared to make such major long term commitments in stable legal, tax and regulatory environments. The Government’s current proposals, arrived at without consultation, have now significantly destabilised that investment framework. As a result, there has been a considerable increase in the perceived risk of investing in Australia, threatening to make Australia a much less attractive place in which to invest.

The risk that unexpected and unforeseen government action will negatively impact on the value of investments is often referred to as “sovereign risk” and, with almost half our Group’s assets invested in Australia, I am sure you will understand why our Chief executive, Tom Albanese, recently referred to Australia as now being his number one sovereign risk concern.

Under the proposed super tax, the industry will be taxed at a rate approaching 57 per cent, which means that Australia will have the highest taxed mining industry in the world. With such a high tax rate, the attractiveness of investing in mining in Australia will be further reduced. Other countries will benefit as investment shifts from Australia to more attractive tax regimes.

We are currently reviewing all our projects in Australia under the worst-case tax scenario to assess the impact the proposed super tax will have on our future growth plans. However, what is abundantly clear to us, is that had this tax been in place ten years ago, we would not have invested as much as we have in the Pilbara, and Rio Tinto would have been a much smaller producer of iron ore today.

The mining industry has assumed a critical role in the ongoing economic success of Australia. We played a major part in ensuring that Australia did not suffer as harshly as the rest of the world from the effects of the Global Financial Crisis. It is crucial that any tax reform does not undermine Australia’s strongest industry. 

We are particularly concerned that the Government announced the super tax proposals without any prior consultation with the industry. Since that announcement, we have continued to emphasise our desire to enter into constructive engagement with the Government, on the basis that genuine consultation would require that all aspects of the proposed tax are open for discussion. We are keen to work positively with the Government on tax reform that would not damage Australia’s competitiveness, its mining industry or the superannuation funds of millions of Australians.

Rio Tinto’s contribution to Australia
I have been deeply concerned about the misrepresentations that have been made about Rio Tinto during the course of this debate. In particular, there has been speculation around the actual amount of taxation that we have been paying in Australia. Rio Tinto has always paid its fair share of tax. We recently released data independently verified by our auditors, PricewaterhouseCoopers, which confirmed that we have paid tax at an effective rate of 35 per cent on our Australian profits over the past decade.  From 2000 to 2009 our corporate tax and royalties paid amounted to A$20 billion.

The ten-year analysis also underlined how Rio Tinto has reinvested its Australian profits back into Australia.  From 2000 to 2009 we generated net profit after tax of about A$37 billion in Australia and re-invested about A$38 billion back into Australia – A$26 billion in capital expenditure and A$12 billion in acquisitions.

We are also proud of the wider contribution we make directly to the Australian community. In 2009, we employed more than 19,000 people across 36 operating sites, and we continue to be the largest private sector employer of Indigenous Australians. We supported more than 1,000 socio-economic programmes in Australia across health, education, business development and environmental protection, at a cost of some A$35 million. We also contributed a similar amount in direct payments via trusts and impact benefit agreements with host communities, taking our total direct community contributions in 2009 to more than A$70 million. I believe this clearly reflects our commitment and desire to actively engage in helping to build a better Australia.

What are we doing?
Rio Tinto has sought a genuine consultation process with the Government on the proposed super tax and has assured it that we remain willing and able to engage in constructive discussions.

We continue to work with our industry colleagues and the Minerals Council of Australia to ensure that our position on the super tax proposals is effectively communicated, not only to the Government, but also to the Australian community.

What can you do about the new mining tax?
If you want more information about this important issue and to make your voice heard,     I would encourage you to visit the Keep Mining Strong website at keepminingstrong.com. At this website you will find regular updates and it will also provide guidance about how you can actively participate in this debate.  For further information regarding Rio Tinto’s contribution to the debate please visit www.riotinto.com.

Rio Tinto has been contributing to Australia’s development more than 100 years and Australia has always played an important role in Rio Tinto’s success.  We believe we are part of an industry that has contributed hugely to the wealth, success and development of Australia.  We do not want that to change.  

Yours sincerely

Jan du Plessis
Chairman

Rio Tinto’s Mine of the Future™ programme was unveiled in January 2008 and initially focused on the Group’s Pilbara iron ore operations. The programme is designed to create next generation technologies for mining operations that result in greater efficiency, lower production costs, improved health, safety and environmental performance, and more attractive working conditions.

Projects such as Resolution Copper in Arizona and Oyu Tolgoi in Mongolia will use an underground block cave mining method. This method requires construction of significant underground infrastructure prior to ore production. In anticipation of this need, Rio Tinto Technology and Innovation has been engaged in a long-running development programme to improve significantly both the safety and speed of constructing underground infrastructure such as shafts and tunnels.

The two new tunneling concepts from Atlas Copco and Aker Wirth will enable fast and cost effective tunnel creation. The shaft boring machinery being developed by Herrenknecht will combine rock excavation, rock transport and structural support – currently three separate processes – into a single system. All three new concepts are a result of civil tunneling industry technologies combined with input from Rio Tinto mining experts and contractor partners Redpath and Cementation.

John McGagh, Rio Tinto Head of Innovation, said, “At the heart of our Mine of the Future™ programme is industry-leading work to pioneer new technologies. The partnerships announced today will help us fundamentally change the world of underground mining by further improving safety and allowing more rapid construction of new underground mines. Our new partners will be very valuable in helping us to solve the challenges of developing block cave mines.”

The Rio Tinto, Atlas Copco and Herrenknecht teams will present information on their respective mining breakthroughs at the upcoming Society for Mining, Metallurgy and Exploration conference on 1-3 March 2010 in Phoenix, Arizona.

Rio Tinto believes the borates business is a good fit within its overall portfolio, based on its asset base, share of global supply and presence in Asian markets. Rio Tinto has also decided not to sell its Jadar lithium-borate deposit in Serbia, which will now be transferred from its Exploration group to be managed within the borate business.

This year Rio Tinto has announced agreed sales totalling US$2.5 billion, including US$850 million for the undeveloped potash assets in Argentina and Canada, US$750 million for the Corumbá iron ore operation in Brazil, US$761 million for the Jacobs Ranch coal mine in the United States and US$125 million for the Ningxia aluminium smelter in China.

Announcing the decision, Rio Tinto Alcan Bauxite and Alumina president Steve Hodgson said the depressed state of the market and a sharp cutback in demand made further tough decisions necessary.

Mr Hodgson said that the current demand for aluminium remained poor and despite major industry wide production cutbacks, stocks continue to increase.

“Even with alumina industry capacity cuts equivalent to 21 million tonnes per year since the beginning of the crisis, including cuts of 12 million tonnes made since January, there is still little improvement in the alumina price.

“At current prices around 70 per cent of the industry is currently operating at a financial loss,” Mr Hodgson said.
 
Work on the Yarwun alumina refinery expansion will be slowed to reduce the rate of capital expenditure. The change to the construction schedule will result in a revised completion date in the second half of 2012.

The decisions announced today will result in the loss of around 100 permanent roles at Weipa and approximately 570 contractor roles in Gladstone. Additionally, approximately 35 permanent roles will be lost from the Yarwun refinery and at Boyne Smelters also in Gladstone.

Mr Hodgson said cost reduction and cash conservation initiatives were being implemented across all Rio Tinto Alcan business units and operations.

“We are strongly focused on minimising costs and conserving cash, and this work is ongoing in our operations as we continue to closely monitor market conditions.”

The role and contractor reductions include:

• Approximately 500 contractor roles at the Yarwun alumina refinery expansion near Gladstone, Queensland
• Approximately 20 permanent roles at Boyne Smelters Limited in Gladstone, Queensland
  100 permanent roles at the Weipa bauxite mine, Cape York, Queensland
• Approximately 15 permanent roles at the Yarwun Alumina Refinery in Gladstone. Additionally a change to the maintenance arrangement at the Yarwun refinery has recently resulted in a reduction of about 70 operational maintenance contract roles

“We will ensure all impacted employees receive their full entitlements and ensure they have the support and assistance they need in the coming weeks,” Mr Hodgson said.

As previously announced, Rio Tinto’s current Chairman, Paul Skinner, will retire from the Boards as Chairman and a non-executive Director at the conclusion of the AGM on 20 April 2009.

Mr du Plessis said “I am delighted to have the opportunity to lead the Rio Tinto Boards at a time of significant change and to be working with such a strong management team led by Chief executive, Tom Albanese. Our immediate focus must be on giving Rio Tinto the best possible platform to create shareholder value and to weather the tough and uncertain global economic conditions. Pursuing the completion of the transaction with Chinalco will give Rio Tinto this platform, from which we will be even better placed to prosper when we see economic recovery.”

Mr Andrew Gould, Senior Independent Director, Rio Tinto, said, “On re-starting the search for a successor to Paul Skinner, the Nominations Committee focused on identifying a candidate with outstanding abilities and experience to lead the Rio Tinto Boards. Jan du Plessis brings a wealth of international business experience to the role and has clearly demonstrated his capabilities since he joined the Boards in September. I am delighted that he will be taking up the role of Chairman. I would like to thank Paul Skinner for agreeing to stay on until a successor was found and for his contribution to the company during his tenure.”

Biographical details – Jan du Plessis

Jan du Plessis will continue to be Chairman of the Board of British American Tobacco plc, a role he has held since 2004. He is a non-executive director and chairman of the Audit Committee of Lloyds Banking Group plc, although he has indicated that he intends to stand down from that role in due course. Jan has also been a non-executive director of Marks & Spencer Group PLC since November 2008.

He was previously Group Finance Director of Richemont, the Swiss luxury goods group and chairman of RHM plc, then a leading British food manufacturer. Jan has degrees in Commerce and Law from the University of Stellenbosch, South Africa, and is a South African Chartered Accountant.